Questions surround Bernie Mac charity

Heather Gillers, Tribune reporter

Bernard McCullough grew up above an Englewood church and then worked as a fry cook while honing his comedy act at night. Decades later, after hitting it big in nightclubs, television and movies, Bernie Mac wanted to give back.

He founded a small charity in 2005 aimed at helping fellow sufferers of sarcoidosis, a disease that disproportionately affects blacks in the U.S. The organization continued after his death three years later, collecting hundreds of thousands of dollars in donations and holding fundraisers — including a blues show as recently as February.

But public records and interviews show that the charity is falling short of key benchmarks for such organizations, as well as the generous intentions of its founder. For instance, records for the six years ending in 2012 show that 13 percent of the Bernie Mac Foundation's spending has gone to charitable programs, far below the 65 percent minimum that experts recommend.

A national sarcoidosis group also told the Tribune that it never received an agreed-upon grant from the Bernie Mac Foundation. Ginger Spitzer, executive director of the Foundation for Sarcoidosis Research, said the Bernie Mac Foundation pledged $100,000 to the group in 2010 but paid out only $50,000.

She said her group then cut ties with the charity, though the Bernie Mac Foundation until recently continued to claim on its website that the two groups are "partners."

Mac's daughter, Je'Niece McCullough, resigned from the Bernie Mac Foundation board of directors almost three years ago because, she said, she felt the organization lacked focus or direction.

"It was like the blind leading the blind," she said. "When my dad was alive, he seemed to have a goal in mind. We didn't seem to have one."

Board President Rhonda McCullough, who is Je'Niece McCullough's mother and Bernie Mac's widow, said she was unfamiliar with the details of the organization's finances.

"Not really knowing what a foundation entails, you learn as you go," she said.

A Tribune review of federal and state records for 2007-12 found the organization spent a total of $767,636 during that period.

Of that amount, $101,982 went to charity, about half to the Foundation for Sarcoidosis Research and half to the University of Illinois Hospital & Health Sciences System. The charity's 2013 tax report is not yet public, but it did donate another $50,000 to the U. of I. health system that year, a hospital spokeswoman said.

About $121,600 during the 2007-12 period went to salaries paid to Rhonda McCullough's two sisters, who work for the charity.

Records show that more than $200,000 was paid out to two firms that have similar names to companies run by Edward Williams, who is treasurer of the Bernie Mac Foundation. Those companies have the same office address as the charity.

Mary Ann Grossett, executive director of the Bernie Mac Foundation, told the Tribune in a letter: "I do not know about Attorney Williams with respect to his companies."

She added: "I only know that my brother-in-law, Bernard McCullough (Bernie Mac), thought the world of him."

The Illinois attorney general's office, following questions from the Tribune about the charity, has asked the Bernie Mac Foundation "to provide additional documentation to address our concerns," said spokeswoman Maura Possley.

Contacted by the Tribune for this story, Williams said in an email that he could not comment while the attorney general's office audits the charity.

Lt. Gov. Sheila Simon, whose husband has sarcoidosis, resigned as honorary chair of the Bernie Mac Foundation on March 20, after the Tribune contacted her about the charity.

Attorney Joseph Ament, the nonprofit's secretary, declined to answer detailed spending questions, citing confidentiality. "The principal beneficiary of the Bernie Mac Foundation is the University of Illinois," he said.

But charitable programs constituted only 29 percent of total spending in 2012 and 13 percent overall for the 2007-12 period. Those proportions fall far below the 65 percent benchmark recommended by the Better Business Bureau's Wise Giving Alliance and the 75 percent threshold recommended by CharityNavigator.

A board of directors of three people — the fewest allowed under Illinois law — oversees the Bernie Mac Foundation's expenditures.

Vice President Charoni Smith, who is Rhonda McCullough's sister, earns a salary from the organization for her work at the charity, according to 2012 tax filings. The charity said in its 2006 application for nonprofit status that Williams, the treasurer, would be paid for his "accounting and tax services." Rhonda McCullough, the president, receives no compensation, records show.

Payments to relatives and board members are permissible under the law. Grossett, a third sister, was paid an annual salary of $40,000 as executive director in 2011 and 2012.

Some experts question the independence of nonprofits whose leadership is dominated by members of the same family.

"Basically this organization could be run around the dinner table," said Chuck McLean, vice president of research at GuideStar, a company that tracks nonprofits. "Are you going to say to your sister, 'I'm not sure you're doing a good job of running this place?' "

Another nonprofit expert also raised questions about the board's small size and lack of independent members.

"Why aren't there other people on this board who are thinking about the big picture and who gets paid?" asked Eve Borenstein, a Minneapolis-based attorney who has testified before Congress about oversight of tax-exempt organizations.

The leadership of the Bernie Mac Foundation was not always so closely connected.

Mac, known for "The Bernie Mac Show" and "The Original Kings of Comedy," founded the organization in 2005 and filed an application for nonprofit status a year later. Board members listed in that application included not only Williams and Mac's wife and daughter but also four Chicago and Los Angeles doctors.

The doctors remained on the board through 2008, when Mac died at age 50 from complications of pneumonia.

Rhonda McCullough said the four doctors had joined the board at Bernie Mac's request, but "as time went on, it just wasn't a good fit."

One of the doctors is named in an ongoing malpractice lawsuit surrounding Bernie Mac's death that was filed by Rhonda McCullough. That doctor told the Tribune he got a letter from the charity asking him to resign.

McLean, of GuideStar, said he has often seen "ineffective philanthropy" by entertainers or athletes and their families.

"Being related to someone famous does not mean that you're well-prepared to run a nonprofit organization," he said. "The heart's in one place and the head's in another."

The money the Bernie Mac Foundation has passed on to charity is meant to address a complex disease whose cause is unknown.

Sarcoidosis causes inflammation of the body's tissues and predominantly affects the lungs, though almost any organ can be involved, according to research compiled by the American Lung Association. The disease can lead to death in some cases when an organ is seriously damaged. Estimates of the number of people in the U.S. who have it range from less than 1 per 100,000 to 40 per 100,000, research shows.

The Bernie Mac Foundation has pledged to raise an additional $400,000 for the University of Illinois Hospital & Health Sciences System, which established the Bernie Mac Sarcoidosis Translational Advanced Research (STAR) Center in 2012.

To date, donations from the Bernie Mac Foundation have contributed to a study of heart sarcoidosis and will help fund more sarcoidosis studies, said the center's founder, Dr. Nadera Sweiss.

The Bernie Mac Foundation's funding is made up of contributions from the public and grants from MacMan Enterprises, which Rhonda McCullough described as Bernie Mac's production company. Mac started the nonprofit with a donation of more than $600,000 from MacMan, and close to $300,000 has since been transferred to the charity from the company, now run by Rhonda McCullough and Williams.

The charity also continues to raise money from the public, most recently at a February blues event featuring musician Bobby Rush, Rhonda McCullough said.

During 2007-12, the Bernie Mac Foundation collected more than $300,000 from the public, according to records. Some contributions were made directly; others came from fundraisers, which records show have included an October 2010 gala and a January 2012 film screening.

But the cost of the events sometimes far exceeded the money raised. The 2010 gala, for example, brought in $64,060 but cost $108,664, records show. The venue alone cost $59,650. Rhonda McCullough said part of the goal of the fundraisers was to raise awareness.

Je'Niece McCullough, Mac's daughter, said she could never get a clear breakdown of the Bernie Mac Foundation's spending.

"My questions were like 'What were we doing with the money that we were getting as far as donations?' " she said. "I do recall even Ed (Williams) saying quite a few times 'We have to be able to show what we're doing with the money.' So my question would be 'OK, what are we doing with it?' I don't believe I ever really got an answer. I do remember my mom quite a few times saying that it was expensive to run the foundation."

Je'Niece McCullough resigned as vice president of the Bernie Mac Foundation in 2011.

"That's my dad," she said. "I'm his only child. I wanted to keep his legacy going. I felt like that's not what it was about anymore."

Her position was filled by Smith, her mother's sister.

Je'Niece McCullough recalled participating in board meetings with Williams and Rhonda McCullough at her mother's home and said she heard little about spending and "never anything" about Williams getting paid for his services.

The organization's records show payments to firms with similar names to companies where Williams is president — payments some experts viewed as disproportionate given the total assets of the charity.

During the 2007-12 period, the Bernie Mac Foundation reported paying a total of $116,602 for "financial consulting" to a firm listed as "IOTA" and $95,954 for "legal and accounting" fees to a firm listed as "EAW Ltd."

Williams, a lawyer and accountant, is listed in state records as president of Edward A. Williams & Associates Ltd. and IOTA 3759 Investments Ltd., both at the same office as the Bernie Mac Foundation.

Lydia Snowden answered the door at that office when a reporter visited in March. Snowden, who is listed in state records as secretary of Edward A. Williams & Associates Ltd. and IOTA 3759 Investments Ltd., declined to answer questions about the relationships between the firms. Bernie Mac Foundation tax filings list Edward A. Williams & Associates Ltd. as the organization's tax preparer.

State records show two active companies called EAW and three others whose names contain the word IOTA. Representatives of all five companies said they have not provided services to the Bernie Mac Foundation.

Records show that the Bernie Mac charity reported the IOTA payments to the IRS as "investment management fees." At the same time, it was paying an established international firm to manage its investments. That firm, Robert W. Baird & Co., charged the Bernie Mac Foundation about $4,000 per year, a fee within the percentage range many experts view as standard.

"The size of the fees (paid to IOTA) is certainly much higher than the typical investment management fees in the market of 1 to 1.2 percent" of an organization's total assets being managed, said Swasti Gupta-Mukherjee, an assistant professor of finance at Loyola University Chicago's Quinlan School of Business who has studied compensation for investment management.

The total assets of the Bernie Mac Foundation were $427,542 in 2010 and $455,328 in 2011. IOTA's 2010 fee of $53,751 amounted to 13 percent of those assets. Its 2011 fee of $60,536 also amounted to 13 percent.

The fees, records show, exceeded the amount the Bernie Mac Foundation reported earning on its investments, which was $41,096 in 2010 and $19,405 in 2011.

Though they are labeled "investment management fees" in tax documents, fees to IOTA are also listed in the Bernie Mac Foundation's records as payments for "financial consulting." Gupta-Mukherjee said that even if IOTA's services fell into that broader category, "13 percent of the total assets still seems disproportionate relative to what you see in most organizations."

She noted that the expenditures would be equivalent to the organization paying a consultant a fee of at least $200 per hour for at least five hours a week for the whole year — a level of service she said seemed high for a nonprofit the size of the Bernie Mac Foundation.

Michael Fine, an attorney with McDermott Will & Emery who advises nonprofit organizations, came to a similar conclusion. "Sixty thousand for a financial consulting fee for an organization of this size with its asset portfolio doesn't make sense to me," he said.

Rhonda McCullough said the organization never compared prices.

Williams "was our accountant and tax attorney for years before Bernard even became famous," she said.

In her letter to the Tribune, Grossett said Williams' services have been valuable: "Attorney Williams may not be cheap, but he is very good at what he does."